==========================================START OF PAGE 1======
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 15097 / September 30, 1996
Accounting and Auditing Enforcement
Release No. 837 / September 30, 1996
SECURITIES AND EXCHANGE COMMISSION v. SURENDRA GUPTA, BHASKER B.
RAO, AND R. RAMANA PENUMARTY, United States District Court for
the Northern District of California, Civil Action No. 96-20809
RMW EAI.
The Securities and Exchange Commission today announced the
filing of a complaint with the United States District Court for
the Northern District of California against Surendra Gupta, a
resident of San Jose, California and former president of
California Micro Devices Corporation ("Cal Micro"); Bhasker B.
Rao, a resident of Chandler, Arizona and former vice president
and general manager of Cal Micro's Tempe, Arizona plant
operations; and R. Ramana Penumarty, a resident of Folsom,
California and former vice president and general manager of Cal
Micro's Milpitas, California plant operations. The Commission's
complaint alleges financial reporting fraud by all three and
illegal insider trading by Rao and Penumarty.
The complaint alleges that during Cal Micro's fiscal year
ended June 30, 1994 the defendants artificially inflated Cal
Micro's publicly reported revenue by directing employees to
falsify documents in order to create the appearance that certain
goods had been shipped to customers when, in fact, the goods had
not been shipped or, in most cases, manufactured. The
defendants' conduct allegedly caused the Company to recognize
revenue for the sale of unshipped and non-existent products, in
violation of Generally Accepted Accounting Principles ("GAAP")
and federal securities laws.
The complaint further alleges that as a result of the
defendants' fraudulent conduct, Cal Micro's financial statements,
as incorporated in its quarterly reports on Forms 10-Q for at
least the second and third fiscal quarters of 1994, ended
December 31, 1993 and March 31, 1994, respectively, and in its
annual report on Form 10-K for the fiscal year ended June 30,
1994, were materially false and misleading. Net sales for the
second and third fiscal quarters were overstated by $4.98 million
or 95%, and $6.1 million or 117%, respectively. Net sales for
fiscal year 1994 were overstated by $15.93 million or 71%.
The complaint also alleges that Rao and Penumarty engaged in
illegal insider trading by selling Cal Micro stock in 1994 while
in possession of material non-public information, including, but
not limited to, the knowledge that they had falsified the
Company's books and records, circumvented its internal accounting
==========================================START OF PAGE 2======
controls, artificially inflated its reported revenues, and
received internal reports which quantified the amount of false
revenue booked on unshipped products. Rao and Penumarty
allegedly avoided losses of approximately $70,204 and $58,385,
respectively, by their illegal trading.
Between August 4, 1994 and January 10, 1995, Cal Micro
issued a series of press releases describing the fraud and its
impact on the Company's financial results, which allegedly caused
the price of Cal Micro's common shares to drop from $22 to $3.88
per share. The Company restated its results for fiscal year 1994
on February 6, 1995, restating product revenue from $38.3 million
to $22.4 million.
In its complaint, the Commission seeks an order permanently
enjoining (i) Gupta from violating Sections 10(b), 13(a),
13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities and
Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20,
13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder; (ii) Rao from
violating Section 17(a) of the Securities Act of 1933 (Securities
Act"), Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5),
and 16(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1,
13a-13, 13b2-1, and 16a-3 thereunder; and (iii) Penumarty from
violating Section 17(a) of the Securities Act, Sections 10(b),
13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act
and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.
In addition, the Commission's complaint seeks disgorgement of the
losses Rao and Penumarty illegally avoided by their insider
trading, civil penalties from each defendant, and an order
barring each of the defendants from serving as an officer or
director of a public company. The investigation is continuing.